Treatment of reimbursement of expenses to service provider from service tax and Income Tax Perspective

Whenever we are appointing any professional (be it chartered accountant, lawyers, consultant etc) then in addition to payment of fees we also reimburse them expenses (like travel ticket cost, hotel bills, local conveyance etc) that has been incurred by them in the course of providing services.

A common question that arises from taxation perspective is

1) whether the service provider is required to charge service tax on such reimbursement amount (Service Tax Perspective) and

2) whether the TDS is required to be deducted on such reimbursement amount by service receiver including the amount of service tax (Income Tax Perspective).

Service Tax Perspective

Q. Whether the service provider is required to charge service tax on such reimbursement amount?

The above question from service tax perspective was examined by the Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt., Ltd Vs Union of India (2012), where the assessee has filed a writ petition before the high court for quashing the show cause notice issued by the service tax department for recovery of service tax on the amount received as reimbursement by him (assessee).

The high court decided in favour of the assessee and concluded that reimbursement of expenses received by the service provider in the course of providing taxable services can never be considered as a part of gross amount charged by the service provider for the service provided.

Against the order of Delhi High Court the service tax department has filed an appeal before the Honorable Supreme Court which is pending as on date.

In order to overcome the decision pronounced by Delhi High Court (which is pending with Supreme Court as on date), the CBEC has amended explanation to section 67 (w.e.f 14.05.2015 i.e the day on which Finance Bill has received the assent of president) as below:

“Consideration” includes:

(i) ………………….

(ii) any reimbursable expenditure or cost incurred by the service provider and charged, in course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed.

(iii) ……………

Thus after the amendment there is no doubt that any amount received by the service provider in form of reimbursement from service recipient will form part of consideration and shall be liable to service tax.

Although payment to pure agent (like payment for stamp duty, taxes etc) will be out of the service tax net.

However the inclusion of reimbursable expenditure as consideration for the period prior to 14.05.2015 is yet to be decided by the Honorable Supreme Court.

Income Tax Perspective

Whether the TDS is required to be deducted on such reimbursement amount by service receiver including the amount of service tax ?

Case	Billing procedure	TDS applicability
1	Same bill consist of fees as well as reimbursement amount	TDS need to be deducted on whole amount including reimbursement (Circular No. 715 dated 08/08/1995)
2	Separate bills are raised for fees and reimbursement amount	TDS need to be deducted only on amount of fees and no TDS on reimbursement (Circular No. 720 dated 30/8/1995 )

As far as TDS on service tax part is concerned via CBDT Circular No. 1/2014 in F. No.275/59/2012-IT(B), Dated: January 13, 2014 it has been clarified that no TDS need to be deducted on the service tax portion of the bill provided the amount of service tax has been shown separately in the bill.

End Capital Gains Tax Exemption to Curb Money Laundering - Bombay Stock Exchange (BSE)

The BSE or Bombay Stock Exchange on Thursday called for ending exemption of capital gains tax on securities to contain various entities using capital markets to evade taxes and launder money.

The government should rethink the exemption on capital gains taxes on traded securities, which is enjoyed by listed companies, in order to avoid misuse of the trading platform to launder money and evade taxes, BSE managing director and chief executive Ashish kumar Chauhan said here on Thursday.

He admitted that multilevel "checks and balances" at exchanges alone will not be able to end money laundering.

Mr Chauhan said that the BSE, which celebrated 140 years of trading on Thursday, is working on a proposal to be submitted to the government which would make it difficult for companies to seek exemption on capital gains tax.

One such proposal is to identify those companies which fail to play fairly in the market and then prevent them from availing of capital gains tax exemption, he said.

"What we saw recently is the use of the market platform for tax evasion. We are in the process of putting up more checks and balances on our main board as well as on the SME platform," he said about the recent suspension of 43 companies from its main board for alleged tax evasion.

His remarks came amidst a recent crackdown by capital market regulator Securities and Exchange Board of India against 239 individuals and entities for allegedly misusing the BSE's SME platform to launder money as well as evade taxes.(NDTV)

Govt hikes minimum wage to Rs 160 a day WEF 1st July 2015

After a gap of two years, the government today hiked the minimum wage for workers by Rs 23 to Rs 160 a day.

The increased wages will be applicable from July 1.

In a statement, Minister of State for Labour and Employment Bandaru Dattatraya said the decision to revise upwards the National Floor Level Minimum Wage (NFLMW) has been taken in view of the increase in retail inflation for industrial workers.

"National Floor Level Minimum Wage has been revised upwards from the existing Rs 137 to Rs 160 per day with effect from July 1, 2015," the release said.

In a letter written to all the Chief Ministers and LGs, Dattatraya asked them to take "necessary steps for fixation/ revision of the minimum rates of wages in respect of all scheduled employment in states/UTs not below the NFLMW of Rs 160 per day with effect from July 1, 2015".

The Minister also stressed on implementation of various provisions of the Minimum Wages Act, 1948.

While reviewing the movement of Consumer Price Index (Industrial Workers) during April 2014 to March 2015 over April 2012 to March 2013, it was observed that the average CPIIW has risen from 215.17 to 250.83, the Minister said.

"Accordingly, the NFLMW has been revised upwards," he added.

In order to have a "uniform wage structure and reduce the disparity in minimum wages" across the country, NFLMW is fixed, which also needs to be revised from time to time on the basis CPIIW.

The wage was last revised to Rs 137 from Rs 115 per day effective July 1, 2013.

It's applicable to all employment verticals irrespective of the workers engaged.

Types of ITR Forms for efiling of Income Tax Return

ITR1:

Amongst the salaried this is one of the most widely used income tax return forms. This form is applicable to taxpayers who have income from salary and own one house property. If you own more than one house property, you are not eligible to fill this form and you may file ITR2A or ITR2.

If you have 'loss' brought forward from previous years, this form is not applicable. This form is not applicable if your income from other sources includes winning from lottery and income from race horses. Similarly, those who earn agricultural income exceeding Rs 5,000 cannot file their return in this form. They may have to file ITR2 or ITR2A in these cases.

ITR2A:

This is the new income tax return form which has been introduced in the current assessment year. If you have salary income but own more than one house property and do not have any capital gains, this form is applicable to you. Earlier, those who owned more than one house property had to file ITR2 whether or not they had capital gains. Now such taxpayers can file ITR2A which is much shorter form than ITR2. This form can still be filed if you have earned long term capital gains from sale of shares on which STT (securities transaction tax) is paid these are exempt from tax.

NRIs can also file this form if they meet the conditions listed therein. However, resident Indians who have foreign bank accounts, or foreign assets or sources of income or have a financial interest in an entity located outside India cannot file their return in ITR2A;they will have to file ITR2.

ITR 2:

This form is for those who have earned capital gains income or those who are residents with foreign sources of income, or are a signing authority in a foreign bank account or have foreign assets or financial interest in an entity outside India. You may also have salary income and income from house property.

This form can be filled in almost all cases except where there is partnership income (ITR3) or business income (ITR4 or ITR4S) and where you have speculative income (ITR4). If your agricultural income exceeds Rs 5,000 and you do not have any business or professional income you can file ITR2. This form is also applicable for those who have losses brought forward from previous years or have income from lottery winnings or income from race horses.

ITR3:

This form is applicable when an individual or an HUF (Hindu undivided family) who is a partner in a firm but does not carry business under proprietorship. This form can be filed where taxable business income has no other income except income by way of any interest, salary, bonus, commission or remuneration, due to or received by a partner from such firm. If the partner does not have any income from the firm by way of interest, salary, etc. and has only exempt income by way of share in the profit of the firm, the taxpayer shall use this form, ITR3, and not ITR2.

ITR4:

This form is applicable for those who have business or proprietorship income. Generally, ITR4 can be filled by anyone who is running a business or undertaking a profession. There is no minimum income you should be earning to file this return. Say if you are a shopkeeper, construction contractor, doctor, tutor, retailer, wholesaler, insurance agent, interior decorator or fashion designer, you can file ITR4.

Absolutely all businesses are eligible to file ITR 4. You can include your salary income, house property income, income from lottery winnings, speculative income, and all your incomes in this return if you have earned them besides your business income.

ITR4S:

This form is for a special case ITR, applicable for businesses where income is calculated on 'presumptive method'. As per the presumptive method, net income is estimated to be 8 per cent of gross receipts (Section 44AD of the Income Tax Act) or Rs 7,500 per month for each vehicle where the taxpayer plies, leases or hires trucks (Section 44AE of the IT Act). This is a special scheme of the Income Tax Department those who opt for this scheme don't have to maintain accounting records. ITR4S is a very simple return just about 3 pages and that's all the IT department wants to know.

Do note that where gross receipts or turnover of a business or profession is more than Rs 1 crore, ITR4S cannot be filed and ITR4 has to be filed by the taxpayer. Taxpayers who own more than one house property cannot file this return form. Those who have income from commission or brokerage, agency business or profession, such as those who are carrying on the profession of legal, medical, engineering, architectural, accountancy, technical consultancy or interior decoration services, or an authorized representative, film artist, company secretary and information technology, are not eligible to file this form. ITR4S cannot be filed if there are losses to be carried forward, or capital gains, or agricultural income in excess of Rs 5,000. Residents who have foreign income or foreign assets cannot file ITR4S. This form is not filed when the taxpayer has any speculative income. In all the above cases, ITR4 shall be filed by the taxpayer where the income from business/profession can be included.

ITR5:

This ITR is meant for firms, LLPs (limited liability partnership), AOPs (association of persons) and BOIs (body of individuals).

ITR6:

Companies other than companies claiming exemption under Section 11 must furnish their income tax in form ITR6. Companies claiming exemption under Section 11 are those whose income from property is held for charitable or religious purposes.

ITR7:

ITR7 is filed when persons including companies fall under Section 139(4A), Section 139 (4B), section 139 (4C) or section 139 4(D). Returns under Section 139(4A) are required to be filed by every person in receipt of income derived from property held under trust or other legal obligation wholly for charitable or religious purposes or in part only for such purposes. Return under Section 139(4B) is required to be filed by a political party if the total income without giving effect to the provisions of Section 139A exceeds the maximum amount that is not chargeable to income tax.

Returns under Section 139(4C) are required to be filed by every scientific research association, news agency, association or institution referred to in Section 10(23A), institution referred to in Section 10(23B), fund or institution or university or other educational institution or any hospital or other medical institution. Returns under Section 139(4D) are required to be filed by every university, college or other institution, which is not required to furnish return of income or loss under any other provision of this Section.

Rate of exchange of conversion of the foreign currency with effect from 03rd July, 2015

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

(DEPARTMENT OF REVENUE)

(CENTRAL BOARD OF EXCISE AND CUSTOMS)

Notification No. 66/2015 – Customs (N.T.)

Dated the 2nd July, 2015

In exercise of the powers conferred by section 14 of the Customs Act, 1962 (52 of 1962), and in super session of the notification of the Central Board of Excise & Customs No. 63/2015-CUSTOMS (N.T.), dated 18th June, 2015, except as respects things done or omitted to be done before such supersession, the Central Board of Excise & Customs hereby determines that the rate of exchange of conversion of each of the foreign currencies specified in column (2) of each of Schedule I and Schedule II annexed hereto, into Indian currency or vice versa, shall, with effect from 3rd July, 2015, be the rate mentioned against it in the corresponding entry in column (3) thereof, for the purpose of the said section, relating to imported and export goods.

SCHEDULE-I

Sl.No.	Foreign Currency	Rate of exchange of one unit of foreign currency equivalent to Indian rupees
(1)	(2)	(3)
		(a)	(b)
		(For Imported Goods)	(For Export Goods)
1.	Australian Dollar	49.45	48.05
2.	Bahrain Dinar	173.85	164.35
3.	Canadian Dollar	51.20	50.05
4.	Danish Kroner	9.60	9.30
5.	EURO	71.45	69.70
6.	Hong Kong Dollar	8.30	8.15
7.	Kuwait Dinar	216.80	204.55
8.	New Zealand Dollar	43.35	42.20
9.	Norwegian Kroner	8.15	7.95
10.	Pound Sterling	100.70	98.45
11.	Singapore Dollar	47.65	46.65
12.	South African Rand	5.35	5.05
13.	Saudi Arabian Riyal	17.50	16.50
14.	Swedish Kroner	7.70	7.50
15.	Swiss Franc	68.15	66.55
16.	UAE Dirham	17.85	16.85
17.	US Dollar	64.25	63.20

SCHEDULE-II

Sl.No.	Foreign Currency	Rate of exchange of 100 units of foreign currency equivalent to Indian rupees
(1)	(2)	(3)
		(a)	(b)
		(For Imported Goods)	(For Export Goods)
1.	Japanese Yen	52.25	51.05
2.	Kenya Shilling	66.00	62.35

[F.No. 468/01/2015-Cus.V]

(Akshay Joshi)

Under Secretary to the Govt. of India

Consequence of Not Downloading TDS certificate from Traces Website

Please also refer to the following provisions of the Income Tax Act, 1961 in this respect:

Downloading of TDS Certificates from TRACES made mandatory:

In this regard, your attention is invited to the CBDT circulars 04/2013 dated 17.04.2013, No. 03/2011 dated 13.05.2011 and No. 01/2012 dated 09.04.2012 on the Issuance of certificate for Tax Deducted at Source in Form 16/16A as per Income Tax Rules 1962. It is now mandatory for all deductors to issue TDS certificates after generating and downloading the same from “TDS Reconciliation Analysis and Correction Enabling System” or http://www.tdscpc.gov.in (herein after called TRACES Portal).

TDS Certificates downloaded only from TRACES hold valid:

In view of above circulars, it may kindly be noted that the TDS Certificates downloaded only from TRACES Portal will be valid. Certificates issued in any other form or manner will not comply to the requirements referred in the Income-tax Act 1961 read with relevant Rules and Circulars issued in this behalf from time to time.

Due Date for downloading and Penalty for non-compliance:

Please be advised that under the provisions of section 203 of the Income Tax Act, 1961 read with rule 31A, Certificate of tax deducted at source is to be furnished within fifteen (15) days from the due date for furnishing the statement of tax deducted at source. Failure to comply with the provisions of the Act will attract penalty under the provisions of section 272A of the Act, a sum of one hundred rupees for every day during which the failure continues.